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House bill proposes state corporation to finance gas development
Kristen Nelson
House Bill 170 never made it out of the House Special Committee on Oil and Gas but it got a lot of attention. Fairbanks Republican freshman Rep. Jim Whitaker, the committee chairman, said in April that it was his intention to hold a lot of hearings before the bill moved. The bill, which would establish a state corporation to finance a liquefied natural gas project, would first require a thorough study of the proposal to be ready by January 2001.
The state corporation proposed in the bill, the Alaska Gas Corp., would issue tax-free revenue bonds to finance the project and would contract with private sector companies for natural gas and to build and maintain a gas conditioning facility on the North Slope, a gas pipeline and gas liquefaction facilities at Valdez. Pipeline mayors support proposal At an April 29 committee hearing, Mayor Dave Cobb of Valdez, Mayor Hank Hove of the Fairbanks North Star Borough and Mayor Ben Nageak of the North Slope Borough supported the bill, which would allocate 25 percent of Alaska Gas Corp. profits to Alaska communities based on population but with a minimum of $50,000 a year.
Amendments proposed would also guarantee unlimited gas supplies (at wellhead cost plus transportation charge to a given point on the pipeline) to local communities who build pipelines to the main gas line from the North Slope or make other provisions to take gas from the line such as LNG facilities.
Questions were asked about the balance between instate gas needs and gas needed for export for the project. Mayor Hove said he didn’t think instate use would be able to make a dent in the gas flowing through the line.
Economics On May 6, the committee heard presentations on the economics of the project and bonding. Whitaker said that with political support for the project based on revenue sharing, it was now necessary to determine that there would be some revenue to share.
Financing the project through tax-free revenue bonds, backers said, would allow a substantial reduction in financing costs and allow North Slope LNG to be placed on the market at a low- or mid-range price, rather than at a high price.
The committee had asked the Department of Revenue to review the proposal, and Commissioner Wilson Condon said that tax-free status would make a significant difference. When the state worked on the stranded gas legislation, Condon said, it found that 40 percent of the costs were taxes — and 80 percent of that 40 percent was federal taxes as applied to a privately owned and financed project.
The IRS would have to approve the corporation’s status to issue tax-free bonds, and that could require a change in the IRS code. Local use, oil production issues Another set of issues was raised when Mayors Cobb, Hove and Nageak reviewed the proposal for the Resource Development Council of Alaska on May 13.
Geologist Tom Marshall asked whether this is the time to sell North Slope gas. It is, he said, still being used to produce oil and he said that he was concerned about the amount of oil which couldn’t be produced if the gas were sold.
In a letter to legislators Marshall has also questioned whether the instate need for gas shouldn’t take precedence over selling gas elsewhere. He noted Louisiana’s experience in contracting for the sale of its gas and then facing expensive energy costs while the state’s inexpensive gas flowed north.
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